Hurrah! Ritchie\’s learnt something!

My word, will wonders never cease.

OK, he hasn\’t realised that he\’s learnt something but learnt something he has.

For much of the rest Worstall is just wrong and Guido’s instincts are right. Whilst on the economic blackboard of so-called rationality Worstall lives by which bears no relationship to reality it is true that it can be shown that a limited company cannot of course pay tax – the reality is that they do change where, when and by whom tax is paid and at what rate – as all tax planning and offshore proves.

Time to do the happy dance!

Yes! Corporations do indeed change, dependent upon all sorts of things, who bears the burden of a tax. This is exactly what I\’ve been saying all along. The company itself does not bear the burden: it\’s some combination of customers in the form of higher prices, workers in the form of lower wages and capital (or shareholders if you prefer) in the form of lower returns. Hey, even Vince Cable agrees with me on this.

And the legal structure around companies and taxation will change which of those groups bears corporate taxation in what portion. This has been my whole point all along!

So well done to Mr. Murphy for finally getting the point.

Who bears it in what portion, now that we\’ve sorted out the logical point, is an empirical question. One where we need to look to empirical studies for an answer.

No, I don\’t say that this is the last word on the matter, only that it is as far as I know a decently done attempt to work this out.

Burdens are measured in a numerical example by substituting factor shares and output shares
that are reasonable for the U.S. economy. Given those values, domestic labor bears slightly
more than 70 percent of the burden of the corporate income tax. The domestic owners of capital
bear slightly more than 30 percent of the burden. Domestic landowners receive a small benefit.
At the same time, the foreign owners of capital bear slightly more than 70 percent of the burden,
but their burden is exactly offset by the benefits received by foreign workers and landowners.
To the extent that capital is less mobile internationally, domestic labor’s burden would be lower
and domestic capital’s burden would be higher.

Please note this though:

As with any simplified model, the analysis is silent about some
potentially important issues – such as the effect of the corporate tax on savings, growth and other
dynamics – that may also have important effects on corporate tax incidence.

There are other papers which (purport) to show that these other important issues lead to the workers\’ wages falling by more than the corporate tax raised. That over time, a £1 raised in corporation tax reduces wages by more than £1. That is, that the incidence upon the workers is more than 100%.

Now I don\’t claim that either of these studies are the be all and end all of the question. But I do insist that now, as above, we\’ve got over this logical point it is possible for us to have a meaningful discussion of who actually does bear the burden of corporate taxation.

I say the majority is carried, at least in an open economy, by labour. Anyone want to try and prove me wrong? Richard?

4 comments on “Hurrah! Ritchie\’s learnt something!

  1. Don’t expect Murphy to answer the question; to show any honesty on this score, he’d sooner have his teeth removed.

  2. Wow. That second Ritchie sentence – 61 word hummer of a sentence – could match just about anything Amanda Marcotte has ever clubbed the public with.

    Bad writing, bad thinking, bad economics, bad accounting and bad taxation: The man is a polymath.

  3. Tim, is it possible he could have muddled what you have said on the subject any more than he did?

    He is either an idiot or to use his own words ‘wilfully blind’.

  4. Pingback: The Great Simpleton » Why do lefties hate the poor so much

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